Climate Change Will Be Disastrous For These Economies

Two possible future. Colors are 2100 temperatures under “business as usual” climate change (left, RCP8.5) and aggressive climate policy (right, RCP2.6). Burke, Hsiang, & Miguel (Nature 2015) demonstrate the effects of these changes on economies around the world. These findings are used in a simulation of future nightlights, as seen from space, since richer economies tend to glow brighter. A hotter world is a more unequal world, with the north benefitting and tropical economies declining. A cooler world leads to more equitable global growth, offering regions like Africa the chance to “catch up”.Figure attribution:Burke, Hsiang, & Miguel (Nature, 2015)

Lucky for Mexico, Hurricane Patricia didn't pack the wallop the Weather Channel thought it might. But as storms get meaner, it is only a matter of time before the next Category 5 hits landfall, or an F5 tornado levels an American farm town. Climate-related disasters are bad news. And many scientists expect they will get worse over the next 70 years or so. While looking that far out is about as difficult as rocket science, Stanford and Berkeley universities took a crack at it anyway.

For Mexico...yeah, it's pretty bad. A 73% reduction in per-capita GDP by 2100 due to natural disasters caused by climate change.

The study, conducted by Stanford professor Marshall Burke, Global Policy Lab climate change researcher Sol Hsiang and Berkeley professor Ted Miguel was published in "Nature" magazine last week. The study looked at how economic output, namely agribusiness around the world, has been affected by changes in temperature and precipitation. It's goal was to come up with potential economic impacts of climate change on world economies.

The United States faces a range of economic risks from global climate change, according to Hsiang. These include increased flooding and storm damage, to less predictable crop yields. Theres also heat-related strains leading to forest fires, water rationing and erosion that has caused California mudslides. This puts increasing pressure on state and federal budgets, with more money going to disaster relief. There is no end in sight, that is for sure.

People work in a banana plantation after the passage of hurricane Patricia at El Rebalse community, Mexico on October 24, 2015. Patricia flattened dozens of homes on Mexico's Pacific coast, but authorities said Saturday the record-breaking hurricane largely spared the country as it weakened to a tropical depression. Nevertheless, storms like this are becoming more frequent and more mean, making small family farming all the more difficult in tropical countries. (Photo by HECTOR GUERRERO/AFP/Getty Images)

The study predicts U.S. per capita GDP will be reduced by 36% by the year 2100. Most countries in the Americas will see a decline in income, with the odd exception of Canada. Cold weather climates tend to fair much better in this scenario. But overall, the study suggests that there is a 63% chance that GDP per capita will drop by at least 10% and a 51% chance it will drop by at least 20%.

In other words, on balance, climate change is going to make us all poorer.

From the study (edited):

Over the last 50 years, temperature has influenced the economic productivity of countries. For cold countries, warming up helps them perform better, up to a point. There is an optimal temperature at around 55 Fahrenheit where economic performance peaks. Then warming above this temperature causes economic productivity to decline, with a rate that accelerates the hotter and hotter a country gets. We have known for some time that the fundamental building blocks of our economies, such as workers and crops, show their highest level of performance at moderate temperatures. Climate change will reshape the global economy, causing a small number of cold countries to perform better and many temperate and hot countries to perform worse. On net, we project that the global economy will do much worse because of climate change, with global average incomes 23% lower. In addition, because some of the cooler richer countries are expected to benefit from warming and poorer tropical countries are hurt, global inequality gets much worse due to climate change."

The studies authors said science does not need to know everything about how the future global economy evolves. It is impossible to know how politics, technology and other changes will alter the global economy five years from now, let alone nearly a century from now.

However, these projections describe the net difference in economic outcomes in a world where politics and technology change at their current pace, and climate change continues status quo. The numbers are meant to be an estimate of the additional economic cost of climate change as policy makers and oil companies start to rethink the science.

Some of the countries that will benefit from warmer weather and get richer include Iceland (531% change in per capita GDP by 2100); Russia (419%) all of Western Europe, the Baltics and the Scandinavian countries in the Arctic, which if all continues as is, will be the new Margaritaville by 2100.

I've spent 20 years as a reporter for the best in the business, including as a Brazil-based staffer for WSJ. Since 2011, I focus on business and investing in the big emerging markets exclusively for Forbes.